Understanding Bali Property Ownership: A Foreigner’s Guide to Leasehold, PT PMA, and Hak Pakai

When it comes to Foreigners and Buying Property in Bali there are 3 main Legal Ownership structures available to them. These being Leasehold (Hak Sewa), PT PMA (a Foreign Owned Company) and Hak Pakai (Right to Use).

Leasehold (Hak Sewa) – The Most Common & Straight Forward Option For Foreign Property Owners In Bali.

For personal use properties such as villas, or to setup an expat property in Bali to live in Leasehold is the most common option for Foreign property owners in Bali. Hak Sewa leases can be for terms of 25 years to 50 years. Leasehold agreements in Bali can generally be extended for further terms and then renewed by the buyer / lessee for the term that they wish. No need to set up an Indonesian Company to Own Leasehold property in Bali, therefore Leasehold is by far the lowest cost option to Own a Foreign Property in Bali and the option to Own Property in Bali to setup home quickly, quickly!

If you want to invest in order to receive rental income or you simply want to have freehold-like rights to the property, then establishing a PT PMA (Foreign Investment Limited Liability Company) would be your best option. As PT PMA is an Indonesian company, this structure would grant you full ownership rights to the property (Hak Milik), similar to freehold. Furthermore, as a separate legal entity from its owners, it would allow you to conduct business, including running a rental property, without exposing your personal assets. Although it may be more complex to set up a company than purchasing a property in a Leasehold Agreement (Hak Sewa), it can provide you with greater benefits in the long run.

Hak Pakai (Right to Use)

is often used by Foreigners who reside in Bali with an Indonesian residency permit (KITAS). Under this Right to Use Agreement the Foreigner holds the strongest property rights in Bali for up to 80 years. The agreement can be set for 30 years and then renewed twice for a further 30 years.

Yield levels vary across locations. Properties in Uluwatu can command the highest rental returns, of 6–9% per annum, followed by Canggu at 6–8% per annum. This makes Canggu a great balance of lifestyle and investment for many. The Seminyak and Sanur areas command lower rental returns in the 5–7% per annum range, whilst Ubud and its wellness-focused tourism commands lower returns of 4–6% per annum. Choose a location to invest in that matches your aims.

For most buyers the process of buying a property in Bali involves four stages.

Firstly there is finding a suitable property either through a property agent or on-line. The second stage involves conducting appropriate legal due diligence into the property including a search at the Notary and the BPN (government land office). Once you are satisfied that the property is suitable to purchase you then sign the Agreement of Purchase and Sales and thereafter pay the agreed deposit. Finally the purchase is registered at the BPN. Registration can take anywhere from four to twelve weeks depending upon the ownership structure.

Buying Property in Bali = Risk and Uncertainty:

The two greatest concerns with Leasehold contracts are the expiry date of the Lease and the cost to renew the contract (above and beyond the original purchase price of the property). That said, setting up a PT PMA can be a bit of a hassle in the beginning (loads of paperwork and numerous Government Departments to get approvals from), while rights to use a property under a Hak Pakai contract could be withdrawn at anytime (independently of the property owner), should the property owner loose his Indonesian residency permit (KITAS). Other potential risks to foreign property investors include: change in Government policy / laws affecting property ownership, building on-going building and / or renovating work at neighboring properties, insufficient and / or inadequate supporting infrastructure (e.g. road works etc.), market saturation (i.e. too many similar properties coming onto the market at the same time, creating downward pressure on rental returns), and so on… in order to give you a balanced view when selecting a Region to buy property in Bali.

What This Means for Your Bali Plan:

1. First time property buyer or digital nomad with a villa lifestyle in mind? Then leasehold is the way to go. Remember to always calculate the lease renewal term after the initial property purchase.
2. As an investor, you want to earn rental income from your property and maintain control over your asset in the long term. In this case, setting up a PT PMA company is recommended, as it may involve more complex legal structure and administration, but in return it offers the highest degree of ownership and investment flexibility.
3. Long-term residents with a KITAS can consider to register for a Hak Pakai (Right to Use) title as this right gives the strongest rights of use and can be transferred should the owner no longer reside in Bali.
4. Choose a region to purchase property in in line with the average rental return of the area. Locations such as Uluwatu & Canggu average 6–9% returns, Seminyak & Sanur average 5–7% returns and Ubud averaging 4–6% returns.

Think about how your property will fit in with your long-term plans and goals. Will a property be best for you if it offers flexibility in your lifestyle, rental returns or capital growth? Knowing this will help you determine the best way to purchase a property in Bali and where the property should be located to meet your needs.